Fence-sitting Labour needs a push to the left

Last week, on 22 June, MPs debated the economy. It was an 'opposition day' in the House of Commons, which means the opposition party tables a motion for debate on a subject of its choosing.

The Labour frontbench chose the economy - neatly on the first anniversary of George Osborne's 'Emergency Budget'. Their motion is set out below:

That this House notes that on 22 June 2010 the Chancellor announced his first Budget with a target to eliminate the structural deficit by 2015-16 through an additional £40 billion of spending cuts and tax rises, including a VAT rise; further notes that over the last six months the economy has not grown, in the last month retail sales fell by 1.4 per cent. and manufacturing output fell by 1.5 per cent. and despite a welcome recent fall in unemployment, the Office for Budget Responsibility predicts that future unemployment will be up to 200,000 higher than expected; believes the Government’s policies to cut the deficit too far and too fast have led to slower growth, higher inflation and higher unemployment, which are creating a vicious circle, since the Government is now set to borrow £46 billion more than previously forecast; calls on the Government to adopt a more balanced deficit plan which, alongside tough decisions on tax and spending cuts, puts jobs first and will be a better way to get the deficit down over the longer term and avoid long-term damage to the economy; and, if the Government will not change course and halve the deficit over four years, demands that it should take a step in the right direction by temporarily cutting VAT to 17.5 per cent. until the economy returns to strong growth and by using funds raised from repeating the 2010 bank bonus tax to build 25,000 affordable homes and create 100,000 jobs for young people.

Very moderate stuff - and still the 'too far and too fast' line. However, it would be foolish not to recognise that this is progress from the "cuts deeper than Thatcher" line of Alistair Darling barely more than a year ago.

The pledge to cut VAT and re-institute the bank bonus tax should be welcomed as the modest, progressive measures that they would be - esepcially since they advocate hypothecating the revenue into affordable house-building (though not council house-building) and job creation to tackle youth unemployment.

However trade unions and Labour Party members still have much further to go to move the party to a more radical position of 'no cuts' - although very welcome that Unite's Executive has passed this very clear policy.

There is the sense of a real battle going on within the Cabinet at the moment. It has also manifested itself over the 30 June strikes with Ed Balls initially breaking cover to say "The trade unions must not walk in to the trap of giving George Osborne the confrontation he wants to divert attention from a failing economy". He neither supported nor condemned the strikes.

On Saturday, Ed Miliband told the Guardian the strikes were a "mistake" and said "I don't think the argument has yet been got across on public sector pensions as to some of the injustices contained on what the government is doing. Personally I don't think actually strike action is going to help win that argument and I think it inconveniences the public" - seemingly not having looked at polls showing 48% of the public supported public sector workers striking to defend their pensions, with only 36% opposed.

But later on Saturday, Peter Hain saluted trade unions "fighting for justice" in the public sector, and followed that up with an appearance on Andrew Marr where he said "One of the things that's led to this situation is the government's reckless and arbitrary attack on public sector pensions without being willing to negotiate. I mean here's Michael Gove coming on your programme and he's urging parents to break strikes. That's not a responsible way of resolving these situations". He also added it was not for Labour to urge union members to go to work saying political leaders should be trying to resolve strikes, not applauding or condemning them.

The question Labour is failing to clearly answer is 'which side are you on?' Labour continues to sit on the fence. It needs members and unions to give it a firm push to the left.

Public Sector Pensions – The Facts

With 750,000 public sector workers about to take strike action on 30 June, public sector pensions are a hot topic. The government is trying to persuade us that they are unaffordable and unfair to those in the private sector. The reality is that low and middle income earners in the public and private sectors are being treated unfairly:

1. The cost of public sector pensions is falling. As noted in the Hutton Report, public sector pensions cost 1.9% of GDP today, but will fall to 1.4% by 2060.
2. Public sector pensions are affordable and sustainable. Reports by National Audit Office (December 2010) and by the Public Accounts Committee (May 2011) find this to be true.
3. Public sector pensions are not ‘gold-plated’. The average public sector pension is around £5,000 per year. For a woman in local government the average is £2,600.
4. Private sector pensions cost the taxpayer too. Private sector pension schemes received £37.6bn in tax reliefs in 2007/08 – that same year they paid out pensions worth only £35bn, research by Richard Murphy shows.
   
5. Cutting pensions means increased eligibility for means-tested benefits. LEAP estimates the cost of providing council tax benefit, housing benefit and Pension Credit to pensioners will be £13.5bn this year.
6. Private sector pensions are often poor or non-existent. But the blame for that is on private sector executives (many of whom have very good pensions) and shareholders.
7. But some private sector pensions are very generous. In 2009, TUC research showed the average value of a FTSE 100 director's total pension rose to £3.4m
8. There are 2 million pensions living in poverty in the UK. A European Commission report in July 2009 showed that only in Cyprus, Latvia and Estonia was there higher pensioner poverty than in the UK.
9. Life expectancy is rising faster for the wealthy. An average 65 year old man in Kensington and Chelsea can expect to live a further 23 years, while in Glasgow it is only 14 years. Raising the pension age has a disproportionate impact on low and middle income earners.
10. We’re all this together – public and private. Changing pension indexation from RPI to CPI would save the private sector £100 billion over the lifetime of existing schemes, according to Pension Capital Strategies. According to TUC research, an 80 year old pensioner with an average public sector pension would be more than £650 a year worse off.

Update: The latest YouGov/Sunday Times poll (pdf) has revealed the unions edging in front in the battle for public opinion – with an almost equal split on Danny Alexander’s reforms and a small majority against Lord Hutton’s proposals. On Hutton, who proposed public sector workers should contribute more to their pension, retire later and receive a lower pension, 43% oppose his plans against 38% in support. Those in the private sector support him 46%-33%, with public sector workers strongly against, by a margin of 66%-21%.

Update 2: An ITV/ComRes poll shows public believe 'Public-sector workers are right to strike over maintaining their pensions': Agree 48%, Disagree 36%.

Update 3: A new ComRes poll finds 49% of people agreed that public sector workers have a legitimate reason to strike, only 35% didn't. By 46% to 35%, people believe that the Government would be wrong to change public sector pensions if most workers affected oppose them.

Inflation is a class issue - the IFS confirms

If imitation is the sincerest form of flattery then the development of your idea is pretty satisfying too.

Yesterday the Institute for Fiscal Studies published a report 'The spending patterns and inflation experience of low-income households over the past decade'. In 2009 LEAP published 'Inflation Report 2009: why inflation is a class issue'. It showed that inflation was hitting the poorest hardest, and concluded that:

"the rate of inflation is not an objective single headline figure, but a subjective complex of forces which affect people very differently"

The IFS report showed that the poorest fifth of households faced an average annual inflation rate of 4.3% between 2008 and 2010, while the richest fifth only had a rate of 2.7%. This is because, as LEAP found, if the cost of essential goods (e.g. food, utility bills, housing) rise then the hardest hit will be the poorest who spend a higher proportion of their incomes on essential goods.

The IFS doesn't endorse our 'Essential Inflation' measure but does refer to 'Inflation inequality', which means "that poorer households will have fared worse over the period of the recession than poverty and inequality statistics that don't account for these differential inflation rates would suggest".

The report also finds that "Pensioners, and in particular those dependent on state benefits, experienced higher rates of inflation than non-pensioners". People on working age benefits have experienced an average rise of 4% in recent years, compared with 2.9% for those in work. This makes the change to CPI uprating for pensions and benefits all the more appalling.

Like our report in 2009, it's important that trade unions and other campaigners use these statistics to make the case for their causes: whether that's an end to pay freezes, uprating of benefits and pensions by RPI or wages (whichever is greater) or for nationalising or regulating the profiteering energy companies.

Expert joins calls for tax on bankers

Economic experts have unearthed “hard evidence” supporting TUC claims that a tax on bank transactions would raise billions of pounds currently being hived off Britain’s public services.

Institute of Development Studies published its latest findings yesterday, which argued that a financial transaction tax (FTT) could be viably implemented across Europe. The research sparked fresh calls for the government to introduce a Robin Hood tax in Britain.

The institute will tell a gathering of economists, policy makers and academics in Brussels today that an FTT on bankers making foreign exchange transactions would raise as much as £15 billion worldwide.

The charity will add that in Britain alone it could raise £7.5bn — roughly the same as the country’s entire aid budget.

TUC general secretary Brendan Barber argued that the findings confirmed that a Robin Hood tax is completely viable and could play a key role in reducing deficits and supporting economic growth.

He said: “As more European governments sign up to a Robin Hood tax, it’s time for the British government to admit that banks are not contributing their fair share towards repairing the mess they’ve created and publicly commit to a stronger tax on banks and major financial institutions.”

John Christensen of Tax Justice Network, an independent organisation analysing the harmful aspects of tax evasion, tax avoidance, tax competition and tax havens, argued that an FTT would not only reduce opportunities for making profits on ultra-low margin trades, it would also potentially raise billions of additional revenue to offset the ongoing damage caused by the financial crisis.

He said: “Bankers may well howl in protest but very few, if any, will act on their threats to leave the country.”

The findings by the institute were laid out in the first comprehensive review of the feasibility of FTTs, dubbed The Tobin Tax: A Review of the Evidence.

Report author Dr Neil McCulloch stressed that the evidence of a significant source of currently untapped revenue cannot be ignored when most of the world’s financial centres are driving through large spending cuts.

“There has never been any compelling economic case against what is a very modest tax on activity by banks and other financial institutions,” said Roger Seifert, professor of industrial relations and human resources at Wolverhampton Business School.

But he added that the main problem has always been and remains the lack of political will by those running the economy for the benefit of the rich and powerful.

Left Economics Advisory Panel co-ordinator Andrew Fisher said: “It is not markets that need to be stabilised, but the people whose lives are derailed by market speculation. The revenue raised from FTT could secure real investment in jobs and support those ravaged by rising fuel and food costs — increasingly caused by speculative trading.”

"Speculative trading is exacerbating crises around the world. A financial transaction tax (FTT) should, like green taxes, have a deterrent as well as a revenue raising effect. This report highlights both how feasible and beneficial a FTT would be."

This article first appeared in the Morning Star on Tue 14 June

Download the IDS report in full

Madhouse economics with lunatics in charge

Where has all the wealth of this country actually gone?
by Prem Sikka
Friday, June 3rd, 2011

Britain’s economic landscape is blighted by economic misery and social exclusion. Nearly 2.5 million people are officially unemployed and 1.5 million are working part-time but would like a full-time job. Youth unemployment is heading towards the one million mark and graduate unemployment is around 20 per cent. Approximately 13.2 million people, including 2.8 million children and 1.8 million pensioners, are living in poverty. Britain’s state pension, as a percentage of average earnings, is the lowest in western Europe. Some 15 per cent of high street shops are empty and the Government’s austerity measures are set to deepen the misery. This is the stark reality of the world’s sixth largest economy and the third largest in Europe. So where does all the wealth go? The answer to this question is crucial because it has a bearing on the possibilities of building a sustainable economy and society.

This country’s gross domestic product has grown from the 1976 figure of £621.22 billion to a current estimate of £1,318.31 billion, but has not been accompanied by equitable share for working people. In 1976, salaries and wages paid to workers accounted for 65.1 per cent of GDP. Following mass privatisations, the demise of skilled jobs in the manufacturing sector and the weakening of trade unions, this declined to 52.6 per cent of GDP in 1996. Following the introduction of the national minimum wage and expansion of the public sector, workers’ share rose. It is now in decline again and stands at 54.8 per cent of GDP. The indications are that, at some companies, the workers’ share of value added is running at less than 50 per cent. Many are facing wage freezes and loss of pension rights. The Government is reviewing employment laws which will inevitably further shrink workers’ share. Of the 200,000 new jobs created in the last year, only 3 per cent are full-time and many do not give employees statutory rights to pension, sick pay or holidays.

All this tells only a partial story, because corporate executives have taken the largest slice of the shrinking share. A recent report by the High Pay Commission shows that, between 1997 and 2008 when Labour was in power, income for the top 0.1 per cent of the population grew by 64.2 per cent, while that of an average earner increased by just 7.2 per cent. A typical FTSE 100 executive receives a pay package of £3.7 million – nearly 145 times more than the average worker.

These trends have resulted in 50 per cent of the population owning less than 1 per cent of the national wealth. The Sunday Times 2011 Rich List shows that the 1,000 richest people in the country have amassed wealth of £395.8 billion, an increase of £60.2 billion since 2010. With wealth of £4.2 billion, Sir Philip Green is listed as the 13th richest person. Many of his employees still receive the minimum wage.

The state has not collected a higher share of the GDP in taxes to enable it to redistribute wealth. In 1976-77, taxation took 43 per cent of GDP. By 1995-96, the tax take declined to 37.2 per cent of the GDP, rising to 38.6 per cent in 2007-08 and back to 37.2 per cent in 2010-11. This decline is one of the reasons behind the brutal public expenditure cuts and loss of welfare rights. The state, or the public share, of taxes has declined even though more people are in work, there are more billionaires than ever before and the corporate sector enjoyed, before the recession, record rates of profitability.

Corporations have been the biggest beneficiaries of government policies, as successive governments have shifted taxes away from capital to labour, consumption and savings. Hikes in VAT and National Insurance contributions are a reminder of this major shift in policy. Income tax personal allowances have not kept pace with inflation and more individuals have become liable to higher rates of income tax at middle earnings. For example, the freezing of personal allowances in the 2011 Budget may result in another 750,000 people paying the 40 per cent higher rate of income tax.

Successive governments have been engaged in a race to the bottom and have appeased the corporate lobby by reducing corporate taxes. In 1982, the rate was 52 per cent of taxable profits. By 2007, it declined to 30 per cent. It is set to be further reduced to 23 per cent by 2014 and corporations are demanding even lower taxes.

The supporters of corporations will point to the fact that, in 1979, corporation tax receipts of £4.6 billion accounted for 5.4 per cent of total tax revenues. Last year, they rose to £38.5 billion and accounted for 7 per cent of the total tax revenues. However, this does not tell us the amounts that they should be paying, as corporations and wealthy elites have become very adept at shifting incomes and profits by using opaque structures and schemes to avoid taxes. For example, Boots, the high street chemist, now has its headquarters in Switzerland to enable it to avoid British taxes. Google dominates the internet and its revenues from this county have soared to £6.35 billion over six years, but the company is estimated to have paid only £8 million in corporate tax.

The United Kingdom is the home of a destructive global tax avoidance industry, headed by major accountancy firms: KPMG, PricewaterhouseCoopers, Deloitte & Touche and Ernst & Young. Various economic models suggest that, due to organised tax avoidance, we may be losing around £100 billion tax revenues each year. Inevitably, this has reduced the tax take, increased the national debt and threatened hard-won welfare rights.

The claim is that reducing corporate taxes somehow stimulates investment and creates jobs. Such a thesis is very simplistic and ignores the availability of skilled labour, education, training, infrastructure and disposable income of ordinary people. A recent study by the Canadian Centre for Policy Alternatives concluded that: “As a means of stimulating growth, employment and even private business spending, the historical evidence suggests that business tax cuts are both economically ineffective and distributionally regressive.”

The reduction in workers’ share and the state’s share of GDP means that more is available to corporations and their shareholders in dividends. This does not mean that their resources necessarily stimulate the UK economy. According to a government study, individuals in Britain own around 10 per cent of the shares listed on the London Stock Exchange. Investors from outside this country own 42 per cent of the shares listed on the London Stock Exchange and a variety of insurance companies, pension funds, unit trusts and investment trusts. Banks own the other 48 per cent. This means that a vast amount of dividends flow out of Britain and are not subject to UK tax.

A few years ago, Sir Philip Green’s business empire paid a dividend of £1.3 billion. Of this, £1.2 billion was paid to his wife who was resident in Monaco and thus escaped a tax of around £285 million, which would have been payable if she resided in the UK. Many private finance initiative companies use tax havens to avoid taxes on payments made to them by British taxpayers.

The current distribution of income and wealth will not facilitate a sustainable economic recovery. Ordinary people spend money on everyday things such as food, transport and clothing and thus generate a greater multiplier effect compared to the concentration of wealth in relatively fewer hands. Yet the UK trend has been in the wrong direction. There is no evidence to support the contention that feeding fat cats somehow percolates wealth downwards. The obsession with reducing corporate taxes has not been matched by any boom in private sector investment and jobs.

Too many people already make ends meet by borrowing and that was one of the factors behind the banking crisis. Yet the Government has learned nothing from that. Rather than redistributing wealth or pursuing progressive taxation policies, it expects ordinary people to take on even more borrowing to stimulate demand. Personal household debt is already £1.62 trillion, bigger than Britain’s GDP and the largest per capita in Europe. The Government expects it to reach £2.13 trillion by 2015. These are the economics of a madhouse. There is so sign of any sustained attack on organised tax avoidance or broadening of the tax base by considering financial transactions tax, mansion tax, wealth tax, monopolies or land value tax.

Prem Sikka is professor of accounting at the University of Essex

This article first appeared in Tribune magazine

NHS £12 bn IT programme 'vision will not be realised' - NAO

Connecting for Health, the £12 billion national IT programme for the NHS launched in 2002, is in serious trouble according to the National Audit Office, and might have to be scrapped.

Billed as the world’s largest civilian IT infrastructure project, its primary objective was to provide an electronic care record for every patient. Since patients could find themselves being treated in a wide variety of different settings, by a growing number of clinical specialists, it was becoming increasingly important to ensure that they all had access to the record of care.

This would reduce the costs of repetitive examinations, and enable a much more effective collaboration between generalists and specialists. To those involved in population medicine, and public health specialists dealing with epidemics, access to an entire population’s health records promised a rich seam for research. Drug companies were hovering like vultures, awaiting new data on prescribing patterns and disease trends.

But now comes the NAO’s a stark conclusion: "The original vision for the national programme for IT in the NHS will not be realised. The NHS is now getting far fewer systems than planned despite the Department [of Health] paying contractors almost the same amount of money. This is yet another example of a department fundamentally underestimating the scale and complexity of a major IT-enabled change programme.”

But there’s a lot more to it than that. Before the programme was launched, hundreds of people across Europe and the USA, including clinicians and information specialists - those close enough to unravel the complexity of the project - had been working on the project for years. They were developing the standards needed to provide the development path that would ensure information could be shared across the multiplicity of systems that had been already installed in health care and those yet to be developed.

What the NAO doesn’t do is to judge the consequences of the decision by the New Labour government to hand the entire programme over to the private sector. Decades of work on standards were thrown away.

In 2003-04, the health department awarded five 10-year contracts totalling some £5 billion to four suppliers for the delivery of local care records systems: Accenture in the East and in the North East; BT in London; Computer Sciences Corporation (CSC) in the North West, and West Midlands; and Fujitsu in the South. The aim was for detailed care records systems to be delivered to all NHS trusts and GP practices (excluding GP practices in the south) by the end of 2007, with increased functionality and integration added until full implementation was complete in 2010.

The naïve expectation from the new project leaders was that the competing suppliers, with little or no knowledge of health care systems, would talk amongst themselves to develop the standards needed to enable records to be shared across all systems.

Now only BT and CSC remain in the game. Whilst the broadband communications infrastructure is up and working, and x-ray and other images are routinely transmitted, and many patients are offered a choice of where they go for hospital treatment, as the NAO says, the care record is unachievable.

After years of missed deadlines, incomplete and inadequate systems and adjustments to the specifications and contracts, the outcome is an indictment of both New Labour’s cosy relationship with the business sector and the failure of market-led solutions.

New Labour effectively gave IT contractors a licence to print money as part of the introduction of the market into health care. Next came foundation hospitals that were run like commercial organisations. You don’t have to be a genius to see where the ConDem government got its inspiration for NHS competition from.

Gerry Gold
Economics editor
www.aworldtowin.net

Glencore: One corporation's power over life and death

Until now the largest and wealthiest commodities trader in the world, notorious for tax avoidance, has managed its murky business in the shadows. But it needs capital to fuel its growth, hence its launch on the London stock market today.

Most people on the planet will not have heard of Glencore, but virtually all are only too well aware of the inflationary effects of its control of a wide range of commodities. Glencore controls 60% of the world’s trade in zinc and 50% in copper.

According to the World Bank’s Food Price Watch, since June 2010, an additional 44 million people fell below the $1.25 poverty line as a result of higher food prices. In March 2011, the food index remained 36% above its level a year earlier.

Even the notoriously right-wing Daily Mail is disturbed by Glencore’s power over life and death. A special investigation says:

Its empire stretches from the jungles of Colombia to the plains of Australia. It makes its money from metals, minerals, oil, sugar, grain — commodities that form the very building blocks of world trade. And, armed with the best possible knowledge of global events, its traders buy these at the lowest possible price and sell at the highest possible mark-up.

With its share issue – the biggest-ever in London – Glencore is now drawing together many more threads in the global web of capital consolidation that is driving food and fuel inflation and forcing tens of millions over the edge into starvation.

Everyone who is anyone in the exploitation of the planet and its people wants to get in on the game of building profit from starvation. Aabar, a unit of Abu Dhabi’s International Petroleum Investment Company is set to be its largest external investor, taking $1 billion. GIC, Singapore’s sovereign wealth fund, will take $400m. Fund managers BlackRock and Fidelity, are set to take $360m and $215m, respectively. Swiss banks Credit Suisse, UBS and Pictet will also take part. Zijin Mining, the Chinese group, will buy as well as several other institutional investors, including hedge funds Och Ziff, Eton Park and York Capital. The launch brings huge fees to the banks which underwrite it. The group is led by global co-ordinators Citigroup, Credit Suisse and Morgan Stanley.

Commodity speculation took off in a big way in the wake of the 2007/8 global financial meltdown. In a co-ordinated panic action, governments and central banks threw billions of every currency onto the world’s credit markets trying to stave off the inevitable recession. But with banks refusing to lend, a great deal of the money found its way into the commodity markets, driving price inflation way beyond the effects of demand and supply pressures.

In 2003, the commodities futures market amounted to just $13 billion. But when the global financial crisis hit, commodities – including food – seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash. "You had people who had no clue what commodities were all about suddenly buying commodities," an analyst from the United States Department of Agriculture said. In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was rolling the markets. From 2003 to 2008, the volume of index fund speculation increased by 1,900%.

But speculation is not the only cause of inflation in food and fuel. Severe weather vents induced by climate change, increased competition for food and land especially from China, increasing costs of production as oil reaches its peak. And the switch to bio-fuel also contributes to the underlying pressures that Glencore and the other speculators feed upon.

A small, and now declining, number of global corporations driven by profit for the benefit of shareholders, have brought the planet to the limits of its ability to support life, and its people to the limits of their ability and willingness to endure its effects.

Gerry Gold
Economics editor
www.aworldtowin.net